Managing and prioritizing demand requires an organization or supply chain wide view of demand.
It involves optimizing demand across the system as measured by optimum organizational profit, demand volume, sales revenue, and customer service, including customer retention.
This is a management activity because it involves setting and enforcing policies to promote this optimization process.
It is a prioritization activity because it involves making judgement calls to decide what actions or customers are more important than other when capacity is limited.
Organizations must manage and prioritize demand because sales will differ on a regular basis from planned demand in total volume and/or in product mix and because supply often cannot produce products in the exact timing and mix specified by the demand plan.
Demand Management and Prioritization Policy
Demand management and prioritization policy should clearly indicate who is allowed to manage and prioritize demand.
Responsibility for managing and prioritizing demand should be restricted to appropriate management levels in the supply organization based on the level of risk involved in the decision.
The highest prioritization decisions involving strategic risks should be made at the executive level, while supply managers should be responsible and held accountable for lower level demand management and prioritization decisions.
A key policy best practice is to retain responsibility for these lower risk decisions at the management level rather than delegating this responsibility to individual salespersons.
Another policy best practice is to retain this management and prioritization power in the demand side of the organization rather than delegating the power to the supply organization.
Demand Management and Prioritization Process
One principle is that the organizations intent is to fulfill demand whenever it is feasible and will result in an increase in marginal profits, even when this demand comes from unexpected sources.
The prioritization process in this case involves finding ways to make the unexpected orders become profitable if they would not otherwise be profitable.
Another principle is that when demand differs from supply within a time frame that allows for supply capacity or operations to be changed without impact on costs or other operations, prioritization is not necessary.
It is the supply organizations responsibility to manage supply in this case.
When there are cist implications to a supply and demand mismatch, management and prioritization is necessary to match supply.
Determining when management and prioritization is necessary involve determining ways to delay commitments until the last possible moment so that prioritization is not necessary for as many operations as possible.
This is done by delaying decisions until a necessary decision point is reached such as when raw materials need to be ordered or a batch process must be started to keep operations running smoothly and at acceptable cost.
These decision points when they relate to operations are called time fences.
Decision points such as time fences should be set in consultation with both the supply and demand side of the organization so that they reflect the optimum balance between production costs and customer service.
Tools for collaborative demand management and prioritization include sharing information on actual capacity or working with retailers well in advance of perceived shortage periods.